Conduent (CNDT) is a ~$3 billion-revenue company that runs the systems and processes its clients don’t want to manage themselves. They process 454 million Medicaid claims per year, disburse $80 billion in government benefit payments, and handle 14 million tolling transactions per day across some of the largest toll systems in the country. They serve 9 of the top 10 U.S. health insurers and 46 state governments.
The company spun out of Xerox in 2017. Revenue has been declining, the previous CEO stepped down in January 2026, and the company’s own leading indicator of future revenue just turned negative. But the segments underneath the corporate overhead tell a more interesting story, and the gap between what the pieces are worth and what the company earns today comes down to one line item on the income statement.
What Conduent Actually Does
Conduent has 51,000 employees in 24 countries, operating in three segments. The common thread is that Conduent runs the systems and processes its clients don’t want to manage themselves, from claims processing to toll collection to benefits administration.
| Segment | Revenue | Adj EBITDA | Margin | What They Do |
|---|---|---|---|---|
| Commercial | $1,511M (50%) | $154M | 10.2% | Business process outsourcing (BPO), customer experience, HR, claims processing |
| Government | $922M (30%) | $221M | 24.0% | Medicaid, EBT/SNAP, child support, WIC |
| Transportation | $609M (20%) | $18M | 3.0% | Electronic tolling, transit fare collection |
| Unallocated | — | $(229)M | — | Corporate overhead, shared IT |
| Total | $3,042M | $164M | 5.4% |
Government generates 24% Adjusted EBITDA margins on sticky, long-duration state contracts. As a standalone business, this segment would be genuinely attractive.
Commercial makes up half of revenue but earns thin 10% margins. It’s shrinking and is the segment most exposed to competitive pressure and AI-driven automation.
Transportation just turned Adjusted EBITDA positive for the first time, driven by a large transit contract in Victoria, Australia that nearly doubled Transit revenue from $233M in 2023 to $371M.
The question that jumps out of this table: how does a company with $221M in Government margin and $154M in Commercial margin only produce $164M in total? The answer is the $(229)M unallocated cost line.
The $229M Problem
The 10-K defines unallocated costs as “IT infrastructure costs that are shared by multiple reportable segments, enterprise application costs and certain corporate overhead expenses.” From the available data, we can estimate the breakdown:
| Component | Estimated Amount |
|---|---|
| Shared IT infrastructure + enterprise applications | ~$208M |
| Corporate depreciation & amortization | ~$33M |
| Cyber breach costs (non-recurring, 2025 only) | ~$25M |
| Stock-based compensation | ~$19M |
| Total (GAAP) | ~$285M |
The ~$208M in shared IT is a Xerox legacy problem. When Conduent spun off in 2017, they had to build their own IT backbone from scratch. Data centers, networks, security infrastructure, enterprise applications, all to support operations across 24 countries for 51,000 employees. Pre-spin, all of that was shared with Xerox.
That ~$208M covers things like SaaS licensing (ServiceNow, Salesforce, SAP-type platforms), cloud infrastructure, cybersecurity tools, internal IT support staff, data center costs, and network connectivity. Most of these are fixed costs that don’t scale down when you lose a contract. When a government client doesn’t renew, the revenue disappears but the licenses don’t.
Unallocated costs have declined from $304M to $287M to $285M over two years, a 6% reduction, while revenue dropped 18% over the same period. The overhead is essentially fixed while the revenue base keeps shrinking underneath it.
The Number That Matters Most
Revenue fell 9% year-over-year to $3.042B. About 57% of that came from intentional divestitures, but the rest, roughly $135M, was organic decline from lost contracts and lower volumes.
The most important number in the entire 10-K isn’t on the income statement. It’s Net ARR, management’s own measure of whether recurring revenue won exceeds recurring revenue lost:
| Quarter | Net ARR (Trailing 12 Months) |
|---|---|
| Dec 2024 | +$92M |
| Mar 2025 | +$116M |
| Jun 2025 | +$63M |
| Sep 2025 | +$25M |
| Dec 2025 | -$8M |
This deteriorated every quarter of 2025 and ended the year in negative territory. New business is growing. ACV signings were up 7% to $517M, and the pipeline sits at $3.2B. But renewals collapsed 22%, from $1.657B to $1.293B in total contract value. When contracts come up for competitive rebid, Conduent has struggled to hold on. The new business wins aren’t enough to offset what’s walking out the door.
The Cash Reality
The balance sheet is much cleaner than it was two years ago. The 2024 divestitures raised ~$830M, which retired most term loans and bought out Carl Icahn’s activist position. Interest expense dropped 36% to $48M. Net debt is roughly $458M ($691M total debt minus $233M cash), and total liquidity is about $456M including the undrawn revolver.
But the improvement hasn’t reached cash flow.
Adjusted EBITDA of $164M sounds manageable against $691M of debt. But reported operating cash flow is negative $(73)M, and that’s after selling $875M of accounts receivable to third-party factoring facilities, up from $624M the prior year. That means Conduent sold nearly 29% of annual revenue in receivables in 2025. Without that program, the underlying cash picture would be significantly worse.
True free cash flow (operating CF minus ~$81M of capex) was approximately -$154M. The trend is moving the wrong direction: roughly breakeven in 2023, negative $106M in 2024, negative $154M in 2025. Cash on the balance sheet dropped from $366M to $233M, and the company drew $25M on its revolver in January 2026 for working capital.
Management described 2025 as the final year of a three-year strategy focused on growth, quality, and efficiency. The stated goal was stronger free cash flow. The result was free cash flow going from breakeven to negative $154M.
The $520M Senior Notes mature in 2029. The terms of any refinancing will depend entirely on what the next three years look like.
Valuation Framework
Given the very different economics of each segment, a sum-of-parts approach makes sense:
| Segment | Adj EBITDA | EV/EBITDA Range | Implied EV |
|---|---|---|---|
| Commercial | $154M | 4–6x | $616M – $924M |
| Government | $221M | 6–8x | $1,326M – $1,768M |
| Transportation | $18M | 3–5x | $54M – $90M |
| Unallocated Costs | $(229)M | 4–6x | $(1,374M) – $(916M) |
| Sum of Parts | $164M | $622M – $1,866M |
To get from enterprise value to equity value, subtract $691M in debt and $120M in preferred stock, add back $233M in cash, and estimate ~$50M for off-balance-sheet obligations. That gives a midpoint equity value of roughly $616M, or ~$3.98 per share.
| Scenario | EV | Equity Value | Per Share |
|---|---|---|---|
| Bear | $622M | ~$44M | ~$0.28 |
| Base | $1,244M | ~$616M | ~$3.98 |
| Bull | $1,866M | ~$1,288M | ~$8.33 |
The unallocated cost bucket is the entire swing factor. Cutting $100M of overhead roughly doubles the base case. If it stays flat while revenue keeps declining, you’re heading toward the bear case. The negative free cash flow also means the company is destroying equity value each quarter, something a static EBITDA multiple doesn’t capture.
What to Watch
| Catalyst | Why It Matters | Timeline |
|---|---|---|
| Net ARR | The leading indicator of revenue direction. Needs to reverse toward positive. | Quarterly earnings |
| New CEO strategy | Harsha Agadi took over in January 2026. No new plan announced yet. | Q1 2026 call (Apr/May) |
| Overhead cuts | The $(229)M unallocated line must come down materially. $19M over 2 years isn’t enough. | Quarterly |
| Operating cash flow | Must show a path toward breakeven. Negative $73M and worsening is not sustainable. | Quarterly |
| Government renewals | The 24%-margin segment is the core of any bull case. Any large state contract loss is material. | Ongoing |
| 2029 Senior Notes | $520M maturity. The market needs to see FCF improvement before offering reasonable refi terms. | Any debt market activity |
The question at the center of Conduent is whether the new CEO can cut the overhead and stabilize renewals fast enough to generate positive free cash flow before the $520M note wall arrives in 2029.
Data sources: Conduent 10-K (filed February 19, 2026, for fiscal year ending December 31, 2025)
Research and analysis conducted with AI assistance using SEC EDGAR filings as primary sources.